Bank Runs and Catch 22

I'm aware that for every $100 we think we have in the bank, the actual case reserve is $1.17 (cf Y2Ksupply.com).

I've heard the advice: get your money out of the bank because the runs start. But I'm having an ethical problem with this. If I go to the bank and withdraw all my money, then I am contributing to the bank run mentality. I am a part of that problem and its enormous consequences.

If I don't go to the bank and withdraw, or if I only withdraw a limited amount, then I risk being one of the "losers left behind" who didn't get in line fast enough (given that reserves can cover only about 4% of the population in hard cash---forgot where I read that).

I honestly think that if people don't run on the banks, that the banks will probably be all right, as they are apparently the most prepared of all the industries.

This is a kind of Catch 22 to me: either be a part of the problem in creating it, or a victim of a problem that others create.

Answers

Maybe I should have put this on a new thread (though it seems
if anything the number of new threads has grown quite a bit
lately!), but you belief that "the banks will probably be
all right", brings up an interesting question. DOES ANYONE
KNOW OF A SINGLE BANK THAT IS, TODAY, Y2K COMPLIANT? I don't
mean 99%, I don't mean in the testing phase, but actually
truly ready for January 1, 2000. (I keep hearing rumblings,
but nothing solid, like "well, there is this bank in
Jamaica...".) Can anyone provide the name of such a bank,
and better still back it up with the bank's web site that
makes this statement, or some other form of credible
documentation???

The other notion that's out there is that somehow "bank runs" will be
the culprit that takes down the civilization, which is mixing up
correlation with causality. The bank runs will be as a result
of heightened awareness that banks, utilities and government dropped
the Y2K ball years ago....that, and awareness that the fractional
reserve system works on faith that "your" money will be there whenever
you want it,..(which everyone should know is a bit like believing in
the tooth fairy, cos now your money is electron dust in
mainframes)..but suddenly ice water awareness of many many people will
lead to panicked withdrawals,...and for good reason.

At a recent city council meeting our Mayor Pro Tem kept
asking,....shouldn't we be preparing and countless bozos speaking to
the council kept saying: "well we don't want people to panic",
again these folks using flawed critical thinking skills, and a
dictionary from the Planet Mongo...Preparation is not synonymous with
panic. Panic, when you understand cause and effect, happens when
humans are caught unprepared.

Don't buy the illogical PR that removing your money will cause a bank
run...it is your money, you have right and reason to remove
it...unless of course you still are placing all that faith in zero
compliant banks, zero compliant power companies, zero compliant
telecom co.,etc. Then, by all means...leave your money there.

So let me get this straight: The banks loan out ten dollars for every
one dollar deposited - and charge interest on the loans. And you have
a problem with taking your money out? I would think the moral problem
would be contributing to this extreme and unsustainable form of usury
in the first place, by putting your money IN. It exists to
concentrate wealth in a non-value-producing sector of population.
Thats why many ancient cultures forbade it, and offered periodic
blanket forgiveness of debts - they didn't want the wealth of the
nation devoured by professional lenders.

People say that "You Y2k survivalist nuts are the problem; you're
going to cause a bank panic!" Putting the reality of Y2k aside for a
moment, again let me get this straight: we're dealing with a system
that, for reasons of maximum profitability, is constructed such that a
persistent and widely disseminated *rumor* or *perception* can topple
it. Hmmm. And we're hearing that it is our moral responsibility to
limit our perceptions, refrain from speaking, and to restrain our
claim on our earned wealth, in order to preserve this system. Did I
miss something?

For some reason I can never get qoutes to show up here, so I will try
to remember as best as I can. Someone was saying do you know of one
bank that is compliant, not 99%, not testing and so on. Well no I
don't nor do I think you ever will. The regulators are saying they
CAN'T tell us. They feel it would give an unfair advantage in
attracting new customers, non-compliant banks (who would be working
towards being compliant, but not there as soon as their competition)
may lose all their depositers and so on.

My feeling is no one will know anything about compliance until
01/01/2000

After doing a little research into the fractional reserve system, I
noticed how it resembled the prisoner's dilemma -- a famous
demonstration of the logical necessity of selfish behaviour -- and so
I wrote a brief essay about it. Like to hear it? Here it goes:

Your essay's great Alex. Thank you. Like you I've never had any
money and probably never will...pianist/music teachers are not high
rollers, contrary to popular myth. Makes many of my decisions a bit
easier.

listen, not to come on too strong, but i have already took 1/2 my $$$$$$$out. I will remove rest shortly. it is my money, the banks charge us per atm usage, forced us to grow dependant on atm's and whos making out? not me. 4sure. i plan on using my money to purchase items, so i can barter and feed my family. Is this a crimee? if so, i'm guilty. but, i do not have faith in the banks now anyhow

I shall withdraw all of my savings prior to the end of this year. As
other have said, it's mine. The worst that can happen to me is I lose
out on the paltry interest I would have "earned".

If the banks survive (and the power stays on, etc.), I simply put it
back in, and I accept my minimal loss. If they don't, at least I've
got mine, even if it is devalued. Not a difficult decision for me
given the enormous risk involved with Y2K.

I don't know that you need to panic just yet, but then again I have
my "Dash Cash" already. That is half of the total that was in the
banking system to start with. Which was very little anyway.
There will certainly be a time when you, me, the guy behind the tree,
all of us, will panic. I don't even pretend to know when it will be,
just that it will be. As for myself, I will complete my coniving as
of 31 Dec 98. (oops 1998).
The operative word here is YOUR money. Take what you need, leave some
small amount if you want to feel better about it (mugger money?), or
take it all out. It's yours.
FWIW: The Federal Reserve (the guys who run ALL of the banks, S&Ls,
Credit Unions, etc. is not a federal institution at all. It is no
more federal than federal express or federal candy canes are. It is a
system of private banks (12 reserve districts) that we allow to print
the notes that we use as money. Since 1974 they can print as many as
they wish and there is no limit to it.
Don't feel bad about taking your money out whenever YOU want to.

Back in 1933, at the height of the bank-run panic in the United States (remember that scene in It's a Wonderful Life when Jimmy Stewart thwarts the run at his family's bank by ponying up his own money?), newly elected President Franklin Roosevelt closed the banks. Called it a bank holiday. A good many of the shakiest banks never reopened -- that was the genesis of FDIC and stricter federal banking regulations. But FDR used one of his first fireside chats to explain some basic economic principles to the American people. One of the points he made was that the money citizens put in their savings accounts didn't just sit there gathering dust. The banks turned around and loaned it out to their neighbors to start businesses and buy cars and homes. That's why banks paid interest on savings -- it was a rental fee for allowing them to use our money. That's why banks collected interest on loans -- it was their rental fee for allowing other people to use the money.
Back in the 30s, people bought into this, because banks were, by and large, local and they operated locally. The banks reopened and there were no more runs. Imagine if WJC were to make the same fireside chat now. (Of course, his fireside probably has a bearskin rug and a trophy collection of thong underwear.) "The banks use your money," says Bill, "to shore up unstable foreign dictatorships and bail out the investment funds of millionaires. The hard-earned money you deposit in your savings account tomorrow will be instantly transferred outside your town, your county, your state, and be given to wealthy New York yuppies so they can cover the margin calls on their brokerage accounts. . . " And so on. I understand the need for fractional reserve banking, but you'll have to excuse me if I no longer see the need for my money to be involved in it at that level. That's one of the reasons we do what little banking we require through a local credit union that is not a branch of a division of a subsidiary of a multinational bank. If your money is in Chase or MegaGlobalBankCorpOne or whatever, I say get it out now, while you still can. Unless, of course, you *want* to shore up foreign dictatorships and multimillionaires.

George: No, but you youyoure thinking of this place all wrong. As
if I had the money back in a safe. Youre moneys not here. Youre
moneys in Joes house(to one of the men)right next to yours. And
in the Kennedy house, and Mrs. Macklins house, and a hundred others.
Why, youre lending them the money to build, and then, theyre going
to pay it back to you, as best they can. Now what are you going to
do? Foreclose on them?

Tom: I got a hundred and forty two dollars in here, and a hundred and
forty two dollars isnt going to break anybody.

George: (handing him a slip) Okay Tom. All right. Here you are. You
sign this. Youll get your money in sixty days.

Tom: Sixty days?

George: Well, now thats what you agreed to when you bought your
shares.

(There is a commotion at the outer doors, a man, Randall, comes in
and makes his way up to tom)

Randall: TomTom, did you get your money?

Tom: No

Randall: Well I did. Old man Potterll pay fifty cents on the dollar
for every share you got.

Crowd: Fifty cents on the dollar!

Randall: Yes, cash!

Tom: (to George) Well, what do you say?

George: Now Tom, you have to stick to your original agreement. Now
give us sixty days on this.

Tom: (turning to Randall) Okay Randall.

Mrs. Thompson: Are you going to Potters?

Tom: Better to get half than nothing.

George: Tom! Tom! Randall! Now wait now listennow listen to me. I
beg of you not to do this thing. If Potter gets hold of this Building
and Loan therell never be another decent house built in this town.
Hes already got charge of the bank. Hes got the bus line. Hes got
the department stores. And now hes after us. Why? Well its very
simple. Because were cutting into his business, thats why. And
because he wants to keep you living in his slums and paying the kind
of rent he decides. Joe, you lived in one of his houses didnt you?
Well have you forgotten what he charged you for that broken down
shack? Here, Ed. You know, you remember last year when things werent
going so well, and you couldnt make your payments. You didnt lose
your house did you? Do you think Potter would have let you keep it?
Cant you understand whats happening here? Dont you see whats
happening? Potter isnt selling. Potters buying! And why? Because
were panicky and hes not. Thats why. Hes picking up some
bargains. Now, we can get through this thing all right. Weve got to
stick together though. Weve got to have faith in each other

I trust that you will sleep better at night if you take the money
out! Or at least half of it now. I know at first it was hard for me
to take a big chunk of what I did have in the bank out, especially
since I did work for a major bank for many years. We didn't even get
paychecks! The money had to automatically go right into our checking
account and then we could write checks or withdraw it out. Now that I
have done my little bank run, I feel more at peace about it. (Oh,
thanks Steve :-) for your encouragement!) So why wait? Get going
while you still don't have to wait in lines! Blondie

I would think that the bank panic will be heightened by everyone
coming at the same time. By people withdrawing their money earlier,
it seems that it will be a service, and enable banks to ATTEMPT to
gear up more based on what they can read as a "trend" instead of a
last-minute "run"... which will happen later, anyway, no doubt.

My mother-in-law is 80. She recently received a letter from
AARP(American Association of Retired People) advising her to have
cash, water, and extra food in the pantry. I don't see why taking
YOUR money out of the bank should make you feel guilty. If this
country can bail out a bankrupt Hedge Fund,(nothing more than a bunch
of greedy gamblers) you should not feel ANY guilt about stashing some
cash.

1.) "Banking is a confidence game." Yes, and so is holding gold, or
any other form of barter item. Unless you can personally use what
you've got in your hand, then you are placing confidence in the idea
that someone will value that item. (Just take a look at baseball card
collectors, for example. Are these little scraps of paper really worth
anything?)

2.) The main reason I keep my money in the bank is to keep it safe
from theft, fire, etc. Under "normal" circumstances it's probably not
a good idea to have thousands of dollars sitting around the house.

3.) It is YOUR money, and making withdrawals now, or steady
withdrawals over the next few months or so will give the banks a
chance to adjust. That's alot better than everyone walking in and
demanding cash in December of 1999.

4.) Since Americans are so heavily in debt, all of the money in
banks can't be going to foreign countries or wealthy gamblers down on
their luck. There are still plenty of loans going to small businesses.

5.) I'm very angry that the Fed bailed out Long Term Capital. I
understand the reasons for doing it, but if the Fed doesn't regulate
their activities, then they should not bail them out. That's how the
FDIC works - you want to offer FDIC insurance, you play by the rules.
(Some would argue with the rules, but that's another story.)

Quoting Mike: 2.) The main reason I keep my money in
the bank is to keep it safe from theft, fire,
etc. Under "normal" circumstances it's
probably not a good idea to have
thousands of dollars sitting around the
house.

Looks like we are all getting a lesson in the relativity of the word
"safe". I personally know many people who do not do business with
banks...who keep a lot of cash on hand, and have not heard of any that
have lost money due to fire/theft etc. It behooves us to keep in mind
that it is in the banking establishment's best interest to sell their
definition of "safe" in order to make a profit, their reason for
being....

You're right, Donna, "safe" is a relative term. I personally know of
no one who has had money stolen or burned in a bank. I do know people
who have lost money in fires and break-ins. I hate gambling, but I do
understand odds, and try to learn from experience. You may keep all
your valuables and cash at home, if you're comfortable with that.
People have been known to carry their entire savings with them, to and
fro, every day.

I see nothing wrong with having extra "Y2K cash" around, but I
wouldn't advise anyone to keep their life savings buried in the back
yard or stuffed in a matress. If the wrong someone knows about a
person's Y2K preparations, how tough would it be for them to take it
all?

I do know many people who have had bank accounts frozen for one reason
or another, no access to personal property...the IRS can grab your
money from the bank any time they want to. Setting aside the
occasional random catastrophic event like Y2K the odds still don't
seem to favor the depositor...and once upon a time I was a hpapy
banking customer.

In answer to Joe, as posted elsewhere the Bank of Scotland
is compliant (inside information), suppose that
doesn't help you. Maybe people should transfer their funds
to a bank that publicly states they are compliant. I have
been demanding such statements from companies I deal with
on a personal level. Maybe the other option is to quietly withdraw
funds without drawing attention to yourself.

The Fed didn't bail out Long Term Capital, they jawboned the
big banks into doing it. That's how I understood the articles
I've read on it, anyway.

So many people in the US live from paycheck to paycheck...
if people don't have any $$$ to take out, do you think they're
going to line up to (not) withdraw it?

Lots of people who *don't* live like that have most of
their money in the stock market, which has (until July) outperformed
bank accounts by a long shot.

Having said that, I'm not advocating leaving your money *in* the
bank. I'm just pointing out that, for many people, the state of
the banking system is a non-issue. If they can't write checks,
that will quickly change though.

Mike, the Fed did not bail out Long Term Credit. The consortium
established for bailout was a composite of it's own investors,
attempting to cover their own butts. It was a "put up the bucks or go
down with the ship" scenario. The Fed simply acted as intermediary,
probably due to the large sums of money at risk.

Amy, the idea of banks continuing to make home equity loans as a sign
that everything is okay is misleading. If these loans were to grind
to a halt, that in itself would cause economic havoc. Above all else,
the banking industry has to maintain the appearance of stability
within a range of limited movement. Either it is easy to get the loan
or it is not so easy, but it is always available.

Goldi -
The fact that the bank is making loans indicates that it has more
money on hand than it is legally required to. Face it, the economy
is good and there is lots of money in the bank. Furthermore, people
are paying off loans, not getting them. No reason you should feel
guilty about taking your little spot of money out of the bank.